Canada: Kobo Obtains Stay Of Ebooks Settlement

The ebooks settlement reached between the Competition Bureau and
four major
ebook publishers has been stayed pending the determination of a
challenge brought by
ebook retailer Kobo Inc. to the settlement.

Kobo argues that its contracts with the four publishers,
Hachette Book Group, HarperCollins, Macmillan, and Simon &
Schuster, will be fundamentally altered or terminated because of
the settlement, and that it will lose money. Kobo claims that a
similar settlement in the US led it to close a US office and
refocus on other markets. Kobo claims that it also led another
ebook company, Sony, to exit the market, and caused Barnes &
Nobles' "NOOK" ebook division to become
unprofitable.

Indigo Books & Music Inc. has applied for leave to
intervene in support of Kobo.
Indigo's CEO Heather Reisman says, in an affidavit, that
the settlement threatens to give Amazon a monopoly or near
monopoly over the sale of ebooks in Canada.

The Competition Bureau, in its response, contends that Kobo is
simply trying to protect the guaranteed 30% margin it has under its
existing contracts, and keep prices from falling.

The ebooks settlement is in the form of a consent agreement
between the Commissioner of Competition and the four ebook
publishers. The Competition Act provides that consent
agreements are treated as orders of the Competition Tribunal as
soon as they are filed with the Tribunal.

The consent agreement provisions replaced consent order
provisions in 2002. The old consent order provisions required the
Tribunal's approval of settlements. The Tribunal made it clear
that it would not rubber stamp consent orders. In a number of
cases, lengthy hearings with multiple intervenors were held. The
Tribunal also rejected a proposed consent orders (or parts of
consent orders) in the Imperial Oil and Palm Dairies cases. This
led to pressure to remove the Tribunal's ability to reject
settlements.

Under the new consent agreement provisions, a person, in this
case Kobo, that is directly affected by a consent agreement, can
apply to the Tribunal for rescission or variation of the consent
agreement. This is what Kobo has done.

The stay is merely the first chapter in Kobo's challenge. In
order to succeed, Kobo must now establish that the terms of the
consent agreement could not be the subject of an order of the
Tribunal.

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Although Canada’s Competition Bureau has been focused the past year on enhancing its advocacy and competition compliance roles, the Bureau has also demonstrated its continued willingness to use formal investigative powers and litigation to effect compliance with the Competition Act.

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